INTERNATIONAL MONETARY SYSTEM

PRESENTATION BY PROF. S.K. VAZE

KEY TERMS
INTERNATIONAL MONETARY SYSTEM CONSISTS OF LAWS, RULES, INSTITUTIONS, INSTRUMENTS, AND PROCEDURES WHICH INVOLVE INTERNATIONAL TRANSFERS OF MONEY. FOREIGN EXCHANGE RATE IS THE PRICE OF ONE CURRENCY EXPRESSED IN ANOTHER CURRENCY. FIXED EXCHANGE RATE IS AN EXCHANGE RATE WHICH DOES NOT FLUCTUATE OR WHICH CHANGES WITHIN A PREDETERMINED BAND.

KEY TERMS
PAR VALUE IS THE RATE AT WHICH THE CURRENCY IS FIXED OR PEGGED. FLEXIBLE EXCHANGE RATE IS AN EXCHANGE RATE THAT FLUCTUATES ACCORDING TO MARKET FORCES. APPRECIATION IS A RISE IN THE VALUE OF A CURRENCY AGAINST OTHER CURRENCIES UNDER A FLOATING RATE SYSTEM. DEPRECIATION IS A DECREASE IN THE VALUE OF A CURRENCY AGAINST OTHER CURRENCIES UNDER A FLOATING RATE SYSTEM.

KEY TERMS
REVALUATION IS AN OFFICIAL INCREASE IN THE VALUE OF A CURRENCY BY THE GOVERNMENT OF THAT CURRENCY UNDER A FIXED RATE SYSTEM. DEVALUATION IS AN OFFICIAL REDUCTION IN THE PAR VALUE OF A CURRENCY BY THE GOVERNMENT OF THAT CURRENCY UNDER A FIXED RATE SYSTEM. CURRENCY BOARD IS A MONETARY INSTITUTION THAT ONLY ISSUES CURRENCY TO THE EXTENT IT IS FULLY BACKED BY FOREIGN RESERVES.

KEY TERMS
GOLD STANDARD IS AN INTERNATIONAL MONETARY SYSTEM WHERE COUNTRIES USE GOLD AS A MEDIUM OF EXCHANGE AND A STORE OF VALUE. BRETTON WOODS AGREEMENT IS AN AGREEMENT SIGNED BY THE REPRESENTATIVES OF 44 COUNTRIES AT THE BRETTON WOODS, NEW HAMPSHIRE, IN 1994 TO ESTABLISH A SYSTEM OF FIXED EXCHANGE RATES.

KEY TERMS
INTERNATIONAL MONETARY FUND (IMF) WAS CREATED AS A WEAK KIND OF CENTRAL BANKS' CENTRAL BANK AT THE BRETTON WOODS CONFERENCE TO MAKE THE NEW MONETARY SYSTEM FEASIBLE AND WORKABLE. SPECIAL DRAWING RIGHTS (SDRS) BECAME AN INTERNATIONAL RESERVE ASSET ON JULY 28, 1969, WHEN MORE THAN THE REQUIRED 85 PERCENT OF THE IMF MEMBERS APPROVED THE PLAN.

KEY TERMS
MONETARY UNION IS A FORMAL ARRANGEMENT IN WHICH TWO OR MORE INDEPENDENT COUNTRIES AGREE TO FIX THEIR EXCHANGE RATES OR TO EMPLOY ONLY ONE CURRENCY TO CARRY OUT ALL TRANSACTIONS. EURO IS A NEW CURRENCY UNIT, WHICH REPLACED THE INDIVIDUAL CURRENCIES OF THE EUROPEAN UNION, THAT WAS INTRODUCED OVER A THREE YEAR PERIOD FROM 1999 TO 2002.

KEY TERMS
CRAWLING PEG IS A PROPOSAL THAT WOULD PROVIDE FOR REGULAR MODIFICATION OF PAR VALUE ACCORDING TO A AGREED-UPON FORMULA. CRAWLING BAND OR THE GLIDING BAND IS A PROPOSAL THAT COMBINES A WIDER BAND AND A CRAWLING PEG.

History of the International Monetary System

A. THE PRE-1914 GOLD STANDARD: A FIXED EXCHANGE SYSTEM B. MONETARY DISORDER FROM 1914 TO 1945: A FLEXIBLE EXCHANGE SYSTEM C. FIXED EXCHANGE RATES (1945-1973): THE BRETTON WOODS AGREEMENT D. BREAKDOWN OF THE BRETTON WOODS SYSTEM

History of the International Monetary System

History of the International Monetary System

THE OBJECTIVES OF THE IMF ARE: (1) TO PROMOTE INTERNATIONAL MONETARY COOPERATION; (2) TO FACILITATE THE BALANCED GROWTH OF INTERNATIONAL TRADE; (3) TO PROMOTE EXCHANGE RATE STABILITY;

History of the International Monetary System

(4) TO ELIMINATE EXCHANGE RESTRICTIONS; (5) TO CREATE STANDBY RESERVES.